No one explained the Law of Compensation better than Earl Nightingale. He put it perfectly when he said:
The law of compensation is based on 3 steps.
The amount of money you receive is going to be in direct ratio to:
(I) The need for what you do.
(II) Your ability to do it.
(III) And the difficulty there will be in replacing you.
Think about the above explanation for a minute and ask yourself these questions: Is there a need for what I do and am I the best at what I do? Your answer to these questions will tell you exactly the reason for your current financial status.
I was working as a courier a long time ago when I came across a small double-glazed window company. Parked in the garage where 3 Maserati. I knew the company owner. He wasn’t educated to university level. Suddenly it hit me. Here I was, a university graduate doing a courier job because I couldn’t find a job but a man whose occupation doesn’t require a university degree can easily afford to own 3 Maserati. I have never been the jealous or envious type, so I was certain that neither jealousy or envy was on my heart at this point. Instead what suddenly hit me was what I heard from Bob Procter of Procter Gallagher Institute on YouTube. In this particular YouTube video, Bob Procter talked about the law of compensation.
It suddenly became clear to me that university degree doesn’t equate financial freedom and we are “paid” based on the 3 things he talked in his law of compensation video. These 3 things are:
(I) the need for what you do
(II) your ability to do it
(III) and the difficulty there will be in replacing you.
While delivering the parcels to the owner of this double-glazing window company, I realised his success was almost guaranteed because there is (1) a strong demand in the UK for what he does and (2) he is good at what he does. There isn’t that much difficulty in replacing a double-glazing window company but you will have to look hard before finding someone as good as he is.
The Law of Compensation is a law you must understand in order for you to be truly financially successful. So let’s look it in the same manner Earl Nightingale broke it down, starting with (1) The need for what you do.
1 - The Need For What You Do
When I was in the university studying as an undergraduate in Mechanical Engineering, I came across a lot of students on and off campus. The standard protocols of University conversation ALWAYS include the question “what are you studying?”. For example, when you meet another student at a student theme party, 90% of the time the conversation is guaranteed to go this way:
Jerry: Hi, my name is Jerry. What’s yours?
Tom: Nice to meet you, Jerry. My name is Tom.
Jerry: I like your transformer costume. Were you going for Optimus Prime?
Tom: Yeah but I made a mess of it.
Jerry: It still looks great.
Tom: Thanks, man.
Jerry: So what course are you doing?
Tom: Am studying Business Managment. What about you?
Jerry: Am doing Electrical and Electronic Engineering.
Tom: Does it involve a lot of maths?
Jerry: Somewhat. It involves a fair amount of mathematical computation and analysis.
Listen to any university student conversation without getting involved, if they are meeting for the first time, 90% of the time their conversation model is usually: Names Exchange -> Talk About Immediate Environment -> University Course.
Sorry for the sidetracking but back to the topic at hand. While I was at Uni, I meet a lot of students and in each conversation, I always find out the other student course. I noticed a lot of students were doing courses which I wouldn’t do for free, let alone pay for them because I simply do not believe there was a demand for these courses in the real world. In order not to offend anyone I won’t be listing the names of some of these degrees here.
But the question you must ask yourself is this: Is there a demand for what I do? Look around you, there are several demands for different types of services and if what you currently do has a low demand or the demand is seasonal, then you must fix this.
The demand for services are already out there, you don’t have to create them. All you have to do is, cater to these demands.
In order to be financially comfortable, you must make sure that whatever you do have a consistent all year demand. For example, a gardener will have high demand during the summer months and very little demand during the winter months. This is not a consistent all year demand. A consistent all year demand occupation will be something like a personal trainer. People always want to lose weight.
In a nutshell, whatever you chose to do, make sure there is a consistent all year demand for it. This is your first step towards financial comfort.
So you’ve decided on an occupation or you already have an occupation that has a strong, consistent all year demand but are you the best at it? Out of 10, how would you rate your ability to do what you do?This leads us to the next step – Your Ability To Do It.
2 - Your Ability To Do It
“It” is your chosen occupation based on what we talked about in (1) The Need For What You Do. Your ability to do what you do will determine how much people are willing to pay you.
There are several smartphones in the market but none of these smartphones commands as much respect and admiration like the latest iPhone. The iPhone is expensive but it also does a lot more. The wonderful thing about the iPhone is that it doesn’t necessarily have one standout feature but its superior quality is based on how it does the little things. A combination of the superior way of how the iPhone does the little things is what makes it great.
You too can learn a thing or two from the iPhone. Whatever service you chose to offer, make sure that every step you ooze quality. You need to create a model that takes care of the “prospect to customer to post-service customer service” side of your business. Every step of this model must be of the highest quality.
So this section is in two parts. On one part you make sure you are the very best at what you do. Be a 10 out of 10. Not a 9 or 9.5 but a 10. And on the other hand, create a business model that takes care of the “prospect to customer, to post-service customer service” side of the business.
This is important because you could be the best at what you do and you still wouldn’t attract customers or when you do attract customers, you can’t retain them because you don’t have a quality robust customers centered system in place.
I know great mathematicians that are just terrible at teaching it. And I have seen small business owners who are the absolute best at their craft but they have awful people management skills or terrible customer service.
Again I will repeat this, you must be the best at what you do and you must have a quality business model that takes care of the “prospect to customer to post-service customer service” side of your business – The human side of your business. This business model should be able to turn most business prospects into customers. And it must have in place a post-service customer service plan.
Most people or businesses are only interested in getting their customers money. Once they get the money, there are not interested in fixing any problem the customer might have post-service. You must be better than this.
Do you know what happens when you are very best at what you do and you also provide your customers with great customer service even after you have completed your transaction with them? They will become loyal fans not just customers. When this happens there will be a great difficulty in replacing you.
3 - The Difficulty There Will Be In Replacing You
The wonderful thing about life is that every action causes a reaction of some sort and this law is universal. When it comes to the 3 components of the law of compensation, the second component – Your Ability To Do It, will cause a reaction that could either be positive or negative for you. This reaction is called “The Difficulty There Will Be In Replacing You“.
If your ability to do what you do is 10 out 10, there will be great difficulty in replacing you with someone of similar calibre but if your ability to do what you do is 5 out 10, then there will be very little difficulty in replacing you.
The Difficulty There Will Be In Replacing You is directly dependant on your ability to do what you do. So, if you want to be in a real position of power whereby you can charge high fees and still attract quality customers, be the very best in what you do and make yourself irreplaceable by giving extraordinary service to your customers. This will make you a person sort after by all. This will make you irreplaceable.
Those that can easily be replaced can never be in a position of power in business or any other type of relationship. Employers hire and sack those that can be easily replaced while at the same time they are courting employees of other companies who they know posses rear quality and are the best in their fields.
This tells you that these people that companies are courting are the gems in their chosen field and people of their calibre are hard to find. You can see this being reflected in the amount they get paid or the amount other companies are willing to pay to have them in their payroll.
In a nutshell, if you are the best in what you do, there will be a great difficulty in replacing, and when there is great difficulty in replacing you, your earning automatically goes up.
The book of Galatians 6:7 says “A man reaps what he sows“. In simple text, it means you get out what you put in. If you invest your time and effort on things that are financially unprofitable, you will be financially poor. You reap what you sow. But if you invest your time in finding out what the demands in the market are and cater to these demands as best as you possibly can, you will be financially comfortable.
The amount you are currently earning is a direct representation of the value you are providing society at this current time. It is as simple as this. Increase the value you are providing society and your income will also increase. And society includes your town, city, country and the whole wide world.
The law of compensation is simply stating that no one is being cheated. Your pay is simply based on:
(I) the need for what you do.
(II) your ability to do it.
(III) and the difficulty there will be in replacing you.
If you able to get it right in all the 3 steps listed above, I guarantee you that your finance will skyrocket.
If you don’t remember anything from reading this article, just remember this, for you to be financially comfortable there must be (1) A strong consistent need for your service and (2) You must be the very best at what you do. These two things take care of the last component of this law – which is “the difficulty there will be in replacing you”.
I hope you’ve found this article useful in one way or the other. If you know anyone who might find it useful, please be kind enough to share it with them using the share buttons at the top of this article. Please also share it on your social media pages. Someone might find it helpful.
Also, you are free to use this article for teaching. All I asked for is to be properly referenced.
Have a wonderful day.